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Firm economic policies that can change the pace of economic development can only be expected after a new government is formed after the parliamentary elections next year. Meanwhile there could be a deterioration in the macroeconomic fundamentals, especially a fiscal slippage, as the people’s expectations are for economic policies that would benefit them immediately irrespective of their consequences on the economy. Such is the nature of electoral politics, especially in Sri Lanka, where the complexity of economic issues is hardly understood and the popular demand is for tax concessions, lower prices, subsidies and hand-outs.

Interim

Furthermore, the parliamentary election early next year compounds the political pressures for populist economic policies. Therefore too much cannot be expected from the change of Presidency and the takeover of the government by the opposition. This interim period could be one where the macroeconomic fundamentals of the economy could be undermined. This is especially so with respect of a lack of fiscal discipline. A further fiscal slippage could make the economic recovery and growth all the more difficult to achieve. The newly elected President has to accede to these though his advisors may caution him of their adverse impacts on the economy.

 Post elections

In this context the economic reconstruction that was discussed in the November 22nd column is possible only after a stable government is established and a new framework of policies implemented. The interim period from now on till a government is formed after the parliamentary elections would be mostly one of laying the foundation for the new economic policies and the institutional framework for the economy to achieve the country’s potential economic growth.

Economic growth

Achieving a higher trajectory of economic growth of more that 5 percent annually in the next five years would be a formidable and challenging task for President Gotabaya Rajapaksa.  A number of economic and non-economic conditions have to be fulfilled for a robust economic performance. These include peaceful conditions among the plural ethnic and religious communities, reduction of corruption, enhancing administrative efficiency, pursuing pragmatic economic policies, strengthening macroeconomic fundamentals and boosting investor confidence. These have been enunciated as priorities by President Gotabaya Rajapaksa himself.

Resolve

President Gotabaya Rajapaksa has indicated his resolve to achieve these preconditions. Several of his actions have indicated a break from the past and a new resolve to build a united Sri Lanka.

Three noteworthy features of his policies that have been clearly enunciated are his commitment to establish a multicultural nation like Canada and Singapore, developing a disciplined society, eliminating corruption and ensuring an efficient administration by appointing professionals on the basis of merit.

These are three vital conditions for economic development. Their attainment would lay a solid foundation for economic growth and development. However achieving these are formidable and challenging tasks. Only a strong political will and resolve could achieve these.

Social cohesion

Foremost among the preconditions for economic development are ethnic and religious harmony leading on to social cohesion. The achievement of such cohesion would be a formidable task as his support base is a Sinhala Buddhist one. President Gotabaya Rajapaksa’s  task can be considered similar to the dilemma that Prime Minister SWRD Bandaranaike faced after his resounding victory in 1956.

However formidable and difficult the task of achieving a united country is, it is imperative. The economic history of the country is replete with serious setbacks to the economy due to ethnic violence. The most recent such setback was the Easter Sunday bomb blasts and the subsequent communal violence and tensions.

Eruption of ethnic and religious violence would setback the economy further.  Social cohesion and peaceful conditions are fundamental imperatives for the country’s economic development. The economy can progress only if there is no ethnic and religious tensions.

Corruption

The elimination of corruption is a foremost prerequisite for economic development. As Prime Minister Imran Khan of Pakistan has repeatedly said: “ Countries are poor because of corruption”. However reducing corruption to a minimum level is a gigantic task as corruption has permeated every aspect of public life. Bribery, like the quality of mercy, is twice blessed, it blesses the one who gives and the one who receives.

The drastic reduction of corruption is a key element for economic success. However difficult it is to minimise corruption, its reduction is vital for economic development. It would enable an efficient allocation of scarce economic resources.

Meritocracy

President Rajapaksa has indicated very clearly that he intends to make a break from the past by appointing persons to key positions on the basis of their professional competence and capacity. This is a vital change as state enterprises are run inefficiently owing to inefficient management of them by political appointees. In 2018 over 400 state enterprises made an aggregate loss of Rs 27 billion. This is nearly one-third of the country’s GDP.

In as much as appointees to these state enterprises should be competent honest persons, it is important that politicians should not interfere with their operations. Given the history of state enterprises, achieving efficient administration of state enterprises would be a Herculean task. Yet the reform of State owned enterprises is crucial for economic development.

Macroeconomic Fundamentals

The stabilisation of the economy’s macroeconomic fundamentals is essential for economic growth. These include the reduction of the fiscal deficit by a two pronged strategy of reducing expenditure and enhancing revenue. This has been made extremely difficult due to expenditure overruns and revenue shortfalls of the government. However fiscal consolidation is essential for macroeconomic stability and economic development. Reducing the nation’s external vulnerability by reducing the foreign debt is another foremost condition that must be achieved for economic stability and growth.

Summary and conclusion

Although the economy cannot be expected to revive till the installation of a new government after the parliamentary election, the commitment to forge a united nation without ethnic and religious tensions, ridding the country of corruption and ensuring that appointments to key positions based on professionalism, capacity and merit would be a sound foundation for economic growth and development. The weakening of the macroeconomic fundamentals owing to political compulsions would require redoubling efforts to ensure an improvement in the macroeconomic fundamentals, especially fiscal consolidation.